San Mateo County has filed a lawsuit against the state of California for allegedly withholding nearly $38 million in funding the county says it should have received from a decades-old budget deal.

The county asserted that the state violated a 2004 budget deal in which counties and cities agreed to give up a portion of vehicle licensing fees and local property taxes to help close the state budget deficit. To repay counties, the state Legislature guaranteed funding for school districts where property taxes alone do not cover school budget needs, according to the county.

However, due to having a high number of districts where property taxes cover school funding needs, San Mateo County has experienced a gap between revenue lost and compensation provided since 2012, the county said. To fill the gap, the state has provided additional supplemental funding to the county each year.

The lawsuit filed Monday alleges that for the 2023-24 fiscal year, the state owed $114.3 million in additional supplemental funding, but only paid $76.5 million, shorting the county government and the 20 cities within the county of about $37.75 million in total.

“These dollars pay for the things in our local budgets that residents rely on every day. … The state made a promise, and breaking it doesn’t just hurt local government budgets, it hurts our residents.” Supervisor Jackie Speier

The funding shortfall will threaten core local services, including health care, public safety, and affordable housing, local leaders said.

“These dollars pay for the things in our local budgets that residents rely on every day — from emergency response and health care to housing and public safety,” San Mateo County Supervisor Jackie Speier said in a statement Wednesday. “The state made a promise, and breaking it doesn’t just hurt local government budgets, it hurts our residents.”

The state paid the full amount it owed under the budget deal to local jurisdictions in 55 other counties, according to the county.

The lawsuit names California Department of Finance director Joe Stephenshaw and California State Controller Malia Cohen as defendants.

California Department of Finance spokesperson H.D. Palmer said that, as of Wednesday morning, the department had not been served with the lawsuit.

“We have not received a formal legal filing and therefore we cannot respond,” Palmer said.